Bears Miss The Obvious

Stocks take a breather early on, but show resiliency midday. Blame it on tech. Disappointment over tech earnings (Microsoft chiefly ) is causing the NASDAQ to notably underperform the broader market in the first half of trading.

But the key for the bulls is for the market to show: 1) resiliency, and 2) rotation into other sectors.

It is doing both; stocks have come well off their lows midday (even techs are off their lows), and many sectors (consumer discretionary, industrials, materials, energy) have led the charge off the bottom.

Separately, healthcare is outperforming today, partially on relief that major healthcare reform is looking a little more iffy.

Bears getting frustrated, but they are missing the obvious. It's easy to see why bears are angry when you see the earnings of a company like trucking giant Conway .

On the surface, it looks awful: earnings are down 40 percent year over year, revenues are down 21 percent. But it's up 16 percent today!

One trader in transportation stocks angrily emailed me this morning: "Explain this to me. How can the stock be trading at $42, the same level it was a year ago, when Revenues and Earnings are 30-40% lower than they were at the time...I will let this euphoria play out. This is crazy, sorry Bob."

The answer to this frustrated trader is...significant cost reductions are translating into significant earnings beat. In the case of Conway, they have gotten so efficient that earnings came in at $0.64 versus expectations of $0.13. That is a huge beat.

This vindicates the core argument of the bulls: that if we ever get any kind of sales improvement (and Conway was very cautious in its commentary) than this will translate into BIG TIME earnings gains.

There is also something specific to Conway: they appear to be gaining market share over rivals like YRC Worldwide .

JP Morgan upgraded Conway this morning, partly because they are assigning a higher P/E (price/earnings) multiple to the company. Why would they do that? Because a significantly expanding "E" usually comes with a higher "P"